| Preqin Although not traditionally a feature of private markets, liquidity has become a top priority for many LPs (and therefore also GPs) across the globe. We took the opportunity to ask Kota Tamura, Senior Portfolio Manager at Wells Global Asset Management (WGAM), about the liquidity challenge. He told us how the Hong Kong-based multi-family office designs portfolios to help its clients – primarily quite conservative Japanese family offices and high-net-worth individuals – achieve their financial goals while also ensuring the liquidity they desire. Kota explains that investors are reluctant to lock down funds for extended timescales. ‘Because of this, we do not currently include typical private equity or VC funds with a holding tenure of 10-plus-2 years.’ Instead, the firm focuses on open-ended or closed-end funds that have maximum holding periods of three years. WGAM is now seeing strong demand for private credit, which can yield comparatively attractive returns in a higher-interest environment. But Kota acknowledges that liquidity can be an issue here, too. ‘They usually feature gating provisions, lengthy notice periods for redemptions, restricted redemption timings, and so forth. Unlike conventional hedge funds, which usually offer greater liquidity, we are unable to regularly rebalance the portfolio.’ Kota emphasizes the importance of building well-diversified private credit portfolios to avoid liquidity problems: ‘We established a fund vehicle to invest in various private credit funds to increase liquidity in the event of redemption requests, while maintaining the ability to offer higher yields and lower volatility than traditional bond markets.’ To safeguard investment in the case of black swan events, the firm diversifies private debt funds by region, type of financing, and collateral. They also adhere to criteria such as first lien collateral, less than 70% LTV, over 10% net projected returns, more than $100mn in AUM, and track records of at least three years to help them identify high-performing managers. Looking ahead, Kota believes that ongoing base-rate cuts will benefit private credit. ‘Many high-net-worth individuals and family offices find the potential for returns and the diversification benefits associated with the asset class appealing.’ Keeping liquidity at the forefront of investment strategies and portfolio construction is crucial. |